10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2005

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission File Number: 1-7534

STORAGE TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 84-0593263
(I.R.S. Employer
Identification Number)

One StorageTek Drive, Louisville, Colorado
(Address of principal executive offices) 80028-4309
(Zip Code)

303-673-5151
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). þ Yes o No

The registrant had 107,995,062 shares of common stock outstanding as of August 1, 2005.

Form 10-Q

STORAGE TECHNOLOGY CORPORATION

INDEX TO FORM 10-Q
July 1, 2005

	PAGE
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Cash Flows		5
Consolidated Statements of Changes in Stockholders’ Equity		6
Consolidated Statements of Comprehensive Income		7
Notes to Consolidated Financial Statements		8
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3 – Quantitative and Qualitative Disclosures about Market Risk		26
Item 4 – Controls and Procedures		27
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings		28
Item 2 – Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities		28
Item 6 – Exhibits		28
Signatures		33
Restated Bylaws
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

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Form 10-Q

STORAGE TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)

	07/01/05			12/31/04
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	860,193		$	853,410
Short-term investments		282,865			281,028
Accounts receivable		461,090			519,273
Inventories		127,121			123,459
Deferred income tax assets		158,513			174,253
Other current assets		7,660			1,062
Total current assets		1,897,442			1,952,485
Long-term investments		19,747			48,408
Property, plant, and equipment		177,565			177,371
Spare parts for maintenance		51,069			49,048
Deferred income tax assets		46,282			46,569
Other assets		140,618			133,960
Total assets	$	2,332,723		$	2,407,841
LIABILITIES
Current liabilities:
Current portion of long-term debt	$	1,231		$	1,551
Accounts payable		110,047			121,019
Accrued liabilities		489,936			533,839
Income taxes payable		227,305			239,253
Other current liabilities		2,471			59,365
Total current liabilities		830,990			955,027
Long-term debt		9,215			11,006
Total liabilities		840,205			966,033
Commitments and contingencies (Notes 4 and 8)
STOCKHOLDERS’ EQUITY
Common stock, $0.10 par value, 300,000,000 shares authorized; 116,057,016 shares issued at July 1, 2005, and 112,875,937 shares issued at December 31, 2004		11,606			11,288
Capital in excess of par value		1,101,444			1,019,101
Retained earnings		654,673			600,095
Accumulated other comprehensive loss		(15,541	)		(38,772	)
Treasury stock, 8,514,716 shares at July 1, 2005, and 5,448,350 shares at December 31, 2004, at cost		(229,204	)		(134,148	)
Unearned compensation		(30,460	)		(15,756	)
Total stockholders’ equity		1,492,518			1,441,808
Total liabilities and stockholders’ equity	$	2,332,723		$	2,407,841

The accompanying notes are an integral part of the consolidated financial statements.

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Form 10-Q

STORAGE TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)

	Quarter Ended						Six Months Ended
	07/01/05			06/25/04			07/01/05			06/25/04
Revenue:
Storage products	$	305,932		$	289,048		$	572,134		$	583,654
Storage services		243,367			227,567			476,421			448,033
Total revenue		549,299			516,615			1,048,555			1,031,687
Cost of revenue:
Storage products		157,432			152,096			288,828			301,715
Storage services		136,161			126,687			269,445			253,937
Total cost of revenue		293,593			278,783			558,273			555,652
Gross profit		255,706			237,832			490,282			476,035
Research and development costs		50,126			47,046			97,497			95,548
Selling, general, and administrative expense		177,031			148,287			341,676			310,972
Operating profit		28,549			42,499			51,109			69,515
Interest income		8,779			3,319			15,955			6,500
Interest expense		(309	)		(318	)		(528	)		(695	)
Income before income taxes		37,019			45,500			66,536			75,320
Provision for income taxes		(5,866	)		(9,873	)		(11,958	)		(16,344	)
Net income	$	31,153		$	35,627		$	54,578		$	58,976
EARNINGS PER COMMON SHARE
Basic earnings per share	$	0.29		$	0.32		$	0.52		$	0.53
Weighted-average shares		105,742			110,675			105,906			110,613
Diluted earnings per share	$	0.29		$	0.32		$	0.50		$	0.52
Weighted-average and dilutive potential shares		107,738			112,726			108,131			113,040

The accompanying notes are an integral part of the consolidated financial statements.

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Form 10-Q

STORAGE TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

	Six Months Ended
	07/01/05			06/25/04
OPERATING ACTIVITIES
Cash received from customers	$	1,080,750		$	1,115,656
Cash paid to suppliers and employees		(982,907	)		(962,099	)
Interest received		15,065			5,861
Interest paid		(474	)		(555	)
Income tax paid		(13,855	)		(15,602	)
Net cash provided by operating activities		98,579			143,261
INVESTING ACTIVITIES
Purchases of investments		(252,991	)		(244,108	)
Proceeds from sale of investments		279,609			193,515
Purchases of property, plant, and equipment		(35,270	)		(27,961	)
Proceeds from sale of property, plant, and equipment		47			13
Other assets		(5,759	)		(23,854	)
Net cash used in investing activities		(14,364	)		(102,395	)
FINANCING ACTIVITIES
Purchases of common stock		(95,056	)		(56,155	)
Proceeds from employee stock plans		52,286			45,068
Proceeds from other debt		1,467			428
Repayments of other debt		(2,114	)		(815	)
Net cash used in financing activities		(43,417	)		(11,474	)
Effect of exchange rate changes on cash		(34,015	)		(29,011	)
Increase in cash and cash equivalents		6,783			381
Cash and cash equivalents — beginning of the period		853,410			727,354
Cash and cash equivalents — end of the period	$	860,193		$	727,735
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income	$	54,578		$	58,976
Depreciation and amortization expense		38,835			40,549
Inventory writedowns		13,891			10,259
Translation loss		16,010			18,684
Other non-cash adjustments to income		38,367			33,567
(Increase) decrease in assets:
Accounts receivable		32,194			83,969
Other current assets		(9,461	)		(13,053	)
Inventories		(10,860	)		4,407
Spare parts		(12,140	)		(10,837	)
Deferred income tax assets		584			(850	)
Decrease in liabilities:
Accounts payable		(8,731	)		(34,723	)
Accrued liabilities		(20,724	)		(23,509	)
Other current liabilities		(21,433	)		(16,870	)
Income taxes payable		(12,531	)		(7,308	)
Net cash provided by operating activities	$	98,579		$	143,261

The accompanying notes are an integral part of the consolidated financial statements.

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Form 10-Q

STORAGE TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(In Thousands)

											Accumulated
	Common						Capital in				Other
	Shares			Common			Excess of Par		Retained		Comprehensive			Treasury			Unearned
	Issued			Stock			Value		Earnings		Income (Loss)			Stock			Compensation			Total
Balances, December 31, 2004		112,876		$	11,288		$	1,019,101	$	600,095	$	(38,772	)	$	(134,148	)	$	(15,756	)	$	1,441,808
Components of comprehensive income:
Net income		—			—			—		54,578		—			—			—			54,578
Other comprehensive income		—			—			—		—		23,231			—			—			23,231
Total comprehensive income		—			—			—		54,578		23,231			—			—			77,809
Shares issued upon exercise of stock options		2,261			226			45,006		—		—			—			—			45,232
Shares issued under employee stock purchase plan		352			35			8,022		—		—			—			—			8,057
Shares repurchased under stock repurchase program		—			—			—		—		—			(95,056	)		—			(95,056	)
Restricted stock activity		626			63			21,089		—		—			—			(14,704	)		6,448
Other		(58	)		(6	)		8,226		—		—			—			—			8,220
Balances, July 1, 2005		116,057		$	11,606		$	1,101,444	$	654,673	$	(15,541	)	$	(229,204	)	$	(30,460	)	$	1,492,518

The accompanying notes are an integral part of the consolidated financial statements.

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Form 10-Q

STORAGE TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)

	Quarter Ended					Six Months Ended
	07/01/05		06/25/04			07/01/05			06/25/04
Net income	$	31,153	$	35,627		$	54,578		$	58,976
Other comprehensive income:
Foreign currency hedging contracts:
Net gain (loss) on foreign currency cash flow hedges, net of tax expense (benefit) of $4,980, $(121), $9,091, and $462		7,922		(192	)		14,462			735
Reclassification adjustment for net losses included in net income, net of tax benefit of $2,309, $3,010, $5,624, and $6,467		3,673		4,788			8,947			10,287
Unrealized gain (loss) on marketable securities:
Holding gain (loss), net of tax expense (benefit) of $150, $(276), $3, and $(134)		238		(461	)		4			(160	)
Reclassification adjustment for net gains included in net income, net of tax expense of $0, $508, $78, and $830		—		(1,186	)		(182	)		(1,936	)
Other comprehensive income		11,833		2,949			23,231			8,926
Comprehensive income	$	42,986	$	38,576		$	77,809		$	67,902

The accompanying notes are an integral part of the consolidated financial statements.

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Form 10-Q

STORAGE TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – BASIS OF PREPARATION

The accompanying interim consolidated financial statements of Storage Technology Corporation and our wholly owned subsidiaries (collectively referred to as StorageTek, we, our, and us) have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2004. In our opinion, the interim consolidated financial statements reflect all adjustments necessary for the fair presentation of results for the periods presented, and such adjustments are of a normal, recurring nature.

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications include our presentation of auction rate securities. We have made reclassifications to our consolidated statements of cash flows to reflect the gross purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. As a result of these reclassifications, net cash used in investing activities increased $60.1 million for the six months ended June 25, 2004. In addition, approximately $334.3 million was reclassified from cash and cash equivalents to short-term investments as of June 25, 2004. These changes in classification did not affect previously reported cash flows from operations, cash flows from financing activities, or consolidated statements of operations for any period.

The consolidated results for interim periods are not necessarily indicative of expected results for the full fiscal year.

NOTE 2 – STOCK-BASED COMPENSATION PLANS

We account for stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Stock-based compensation reflected in net income is related to restricted stock.

The following table illustrates the pro forma effect on net income and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based compensation (in thousands, except per share amounts):

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Form 10-Q

	Quarter Ended						Six Months Ended
	07/01/05			06/25/04			07/01/05			06/25/04
Net income, as reported	$	31,153		$	35,627		$	54,578		$	58,976
Add: Stock-based compensation expense included in reported net income, net of related tax effects		2,475			1,260			4,394			2,515
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(8,539	)		(6,498	)		(16,477	)		(12,427	)
Pro forma net income	$	25,089		$	30,389		$	42,495		$	49,064
Earnings per share:
Basic, as reported	$	0.29		$	0.32		$	0.52		$	0.53
Basic, pro forma	$	0.24		$	0.27		$	0.40		$	0.44
Diluted, as reported	$	0.29		$	0.32		$	0.50		$	0.52
Diluted, pro forma	$	0.24		$	0.27		$	0.40		$	0.44

NOTE 3 – INVENTORIES

Inventories, net of associated reserves, consist of the following (in thousands):

	07/01/05		12/31/04
Raw materials	$	34,200	$	26,567
Work-in-process		29,087		21,341
Finished goods		63,834		75,551
	$	127,121	$	123,459

NOTE 4 – LITIGATION

In August 2002, Ted Marx, a former StorageTek employee who was terminated in 2001, filed suit in California State Superior Court (Los Angeles) against us. The complaint contained claims for wrongful termination, wrongful termination in violation of the California Labor Code, breach of the covenant not to terminate without good reason, breach of contract, breach of the covenant of good faith and fair dealing, failure to pay wages under the California Labor Code, and intentional infliction of emotional distress. In September 2003, we filed a motion for summary judgment. In December 2003, the court ruled in our favor on the claim of breach of the covenant not to terminate without good reason. The trial commenced in May 2004. In June 2004, the jury awarded approximately $2.9 million in compensatory damages and $9.0 million in punitive damages to the plaintiff. In addition, in the first quarter of 2005, the trial court awarded approximately $1.0 million in attorney fees and costs to the plaintiff. We are vigorously seeking to overturn and/or reduce these awards and are in the process of filing our appeal with the California Court of Appeals. We have not accrued the damages or the attorney fees for this case, as we do not believe that these amounts represent a loss contingency that meets the definition of probable under SFAS No. 5, “Accounting for Contingencies.”

We are also involved in a number of other pending legal proceedings that have come up in the ordinary course of business. We believe that any liability as a result of adverse outcomes in such proceedings would not have a material adverse effect on our financial condition taken as a whole. However, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on our financial condition or results of operations in a

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Form 10-Q

particular quarter. An unfavorable decision, particularly in patent litigation, could require material changes in production processes and products or result in the inability to ship products or components found to have violated third-party patent rights.

NOTE 5 – CREDIT FACILITIES

We have a $75.0 million unsecured revolving credit facility (the Revolver) that expires in October 2008. The interest rates for borrowing under the Revolver are based upon our Consolidated Leverage Ratio, which is the ratio of Consolidated Funded Indebtedness to rolling four quarter Consolidated Earnings Before Interest Expense, Taxes, Depreciation, and Amortization (EBITDA). The rate ranges from the applicable LIBOR plus 1.00% to 2.00% or the agent bank’s base rate plus 0.00% to 1.00%. We pay an annual commitment fee of 0.175% or 0.200% on any unused borrowings based upon the Consolidated Leverage Ratio. The Revolver contains certain financial and other covenants, including limitations on the payment of cash dividends. We had no outstanding borrowings under the Revolver as of July 1, 2005. However, we had letters of credit totaling approximately $850,200 under the Revolver as of July 1, 2005.

NOTE 6 – OPERATIONS OF BUSINESS SEGMENTS

StorageTek is organized into two reportable business segments based on the definitions provided in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”: storage products and storage services. The storage products segment includes sales of tape, disk, network, and other miscellaneous products. The storage services segment includes maintenance and support services, as well as professional services.

We do not have any intersegment revenue, and segment operating performance is evaluated based on gross profit. The aggregate gross profit by segment equals the consolidated gross profit, and we do not allocate research and development costs; selling, general, and administrative expense; interest income; interest expense; or provision for income taxes to the segments. The following table shows revenue and gross profit by segment (in thousands):

	Quarter Ended				Six Months Ended
	07/01/05		06/25/04		07/01/05		06/25/04
Revenue:
Storage products	$	305,932	$	289,048	$	572,134	$	583,654
Storage services		243,367		227,567		476,421		448,033
Total revenue	$	549,299	$	516,615	$	1,048,555	$	1,031,687
Gross profit:
Storage products	$	148,500	$	136,952	$	283,306	$	281,939
Storage services		107,206		100,880		206,976		194,096
Total gross profit	$	255,706	$	237,832	$	490,282	$	476,035

The following table provides supplemental financial data regarding revenue from our storage products segment (in thousands):

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Form 10-Q

	Quarter Ended				Six Months Ended
	07/01/05		06/25/04		07/01/05		06/25/04
Tape products	$	242,457	$	215,044	$	454,354	$	438,133
Disk products		35,826		46,186		68,317		90,404
Network products		17,310		18,595		30,107		35,609
Other		10,339		9,223		19,356		19,508
Total storage products revenue	$	305,932	$	289,048	$	572,134	$	583,654

NOTE 7 – EARNINGS PER COMMON SHARE

The following table presents the calculation of basic and diluted earnings per share (in thousands, except per share amounts):

	Quarter Ended				Six Months Ended
	07/01/05		06/25/04		07/01/05		06/25/04
Net income	$	31,153	$	35,627	$	54,578	$	58,976
Weighted average common shares outstanding:
Basic		105,742		110,675		105,906		110,613
Effect of dilutive common stock equivalents		1,996		2,051		2,225		2,427
Diluted		107,738		112,726		108,131		113,040
Earnings per common share:
Basic	$	0.29	$	0.32	$	0.52	$	0.53
Diluted	$	0.29	$	0.32	$	0.50	$	0.52

For the quarters ended July 1, 2005, and June 25, 2004, options to purchase 1,521,596 and 3,612,443 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of our common stock, and therefore, the effect would have been antidilutive. For the six months ended July 1, 2005, and June 25, 2004, options to purchase 890,649 and 3,623,196 shares of common stock, respectively, were excluded from the computation of diluted earnings per share for the same reason.

NOTE 8 – INDEMNIFICATIONS AND WARRANTIES

Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” requires that a liability be recorded in the guarantor’s balance sheet upon issuance of certain guarantees. FIN 45 also requires additional disclosures about the guarantees an entity has issued, including a rollforward of the entity’s product warranty liabilities.

In the normal course of business, we are party to a variety of agreements under which we may be obligated to indemnify the other party for certain matters. These obligations typically arise in contracts where we customarily agree to hold the other party harmless against losses arising from a breach of representations or covenants for certain matters such as title to assets and intellectual property rights associated with the sale of products. We also have indemnification obligations to our officers and directors. The duration of these indemnifications varies, and in certain cases, is indefinite. In each of these circumstances, payment by us depends upon the other party making an adverse claim according to the procedures outlined in the particular agreement, which procedures generally allow us to challenge the

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Form 10-Q

other party’s claims. In certain instances, we may have recourse against third parties for payments that we make.

We are unable to reasonably estimate the maximum potential amount of future payments under these or similar agreements due to the unique facts and circumstances of each agreement and the fact that certain indemnifications provide for no limitation to the maximum potential future payments under the indemnification. We have not recorded any liability for these indemnifications in the accompanying consolidated balance sheets; however, we accrue losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is both probable and reasonably estimable.

We provide warranties associated with the sale of our products. Our standard product warranties provide for the repair or replacement of products that fail to meet their published specifications. In situations where a product fails its essential purpose to the customer, we may also be responsible for refunding the purchase price of the product if we cannot remedy the product failure. We establish a warranty liability for the estimated cost of warranty-related claims at the time revenue is recognized. The following table summarizes information related to our warranty reserves (in thousands):

	Six Months Ended
	07/01/05			06/25/04
Balance at beginning of period	$	44,536		$	43,676
Accruals for warranties issued		15,244			18,421
Adjustments to warranties		58			(3,737	)
Amortization		(26,138	)		(22,664	)
Balance at end of period	$	33,700		$	35,696

NOTE 9 – RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4.” This statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement requires that the above items be recognized as current period charges, regardless of whether they meet the criterion of abnormal. Additionally, SFAS No. 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005, and is required to be adopted by us in the first quarter of fiscal 2006. We do not expect SFAS No. 151 to have a material impact on our financial condition or results of operations.

In December 2004, the FASB issued Statement No. 123R, “Share-Based Payment,” which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. In April 2005, the SEC approved a delay in the effective date of SFAS No. 123R. As a result of this delay, we are required to adopt SFAS No.123R no later than the first quarter of fiscal 2006. We are currently evaluating the impact of SFAS No. 123R on our financial position and results of operations, as well as the timing and method of adoption of SFAS No. 123R. See “Stock-Based Compensation Plans” above for information related to the pro forma effects on our net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. We have not determined whether the adoption of SFAS No. 123R will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.

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Form 10-Q

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” (FIN 47). FIN 47 clarifies that conditional asset retirement obligations meet the definition of liabilities and should be recognized when incurred if their fair values can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The cumulative effect of initially applying FIN 47 will be recognized as a change in accounting principle. We do not expect FIN 47 to have a material impact on our financial condition or results of operations.

In June 2005, the FASB issued FASB Staff Position (FSP) No. FAS 143-1, “Accounting for Electronic Equipment Waste Obligations,” which provides guidance on how commercial users and producers of electronic equipment should recognize and measure asset retirement obligations associated with the European Directive 2002/96/EC on Waste Electrical and Electronic Equipment. The guidance in FSP No. FAS 143-1 applies to the later of our fiscal quarter ended July 1, 2005, or the date of the adoption of the law by the applicable European Union (EU) member country. The adoption of the FSP in the current quarter did not have a material impact on our financial condition or results of operations. Due to the fact that several major EU-member countries have not yet enacted country-specific laws, we cannot estimate the effect of applying this guidance in future periods.

NOTE 10 – MERGER AGREEMENT WITH SUN MICROSYSTEMS, INC.

On June 2, 2005, Sun Microsystems, Inc. (Sun) and StorageTek announced that they entered into a definitive agreement under which Sun will acquire StorageTek for approximately $4.1 billion in cash. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act has expired. The proposed merger remains subject to satisfaction of certain conditions to closing, including clearance under the European Union merger control, approval by StorageTek stockholders at a special meeting of stockholders scheduled for August 30, 2005 in New York City, the absence of a material adverse change with respect to StorageTek, StorageTek’s compliance with its covenants and agreements under the merger agreement, StorageTek’s representations and warranties under the merger agreement being true and correct as of the closing date (except where the failure of such representations and warranties to be true and correct would not have a material adverse effect on StorageTek), and the absence of any legal restraint preventing the merger. The proposed merger is expected to close in late summer or early fall 2005. If the merger agreement is terminated under certain circumstances, we may be required to pay a termination fee of $133.0 million to Sun.

NOTE 11 – SUBSEQUENT EVENT

The American Jobs Creation Act of 2004 (AJCA), enacted on October 22, 2004, provides for a temporary 85% dividends received deduction on certain foreign earnings repatriated during a one-year period. In December 2004, the FASB issued FSP No. FAS 109-2, which gives a company additional time to evaluate the effects of the AJCA on any plan for repatriation of foreign earnings for purposes of applying SFAS No. 109, “Accounting for Income Taxes.” As of July 1, 2005, we had not yet finalized our plan for repatriation of foreign earnings. Accordingly, as provided for in FSP No. FAS 109-2, we had not yet adjusted our income tax expense and balance sheet as of July 1, 2005, to reflect the effect of the new repatriation provision.

On July 13, 2005, our chief executive officer and the Board of Directors approved our domestic reinvestment plan. Pursuant to that plan, we intend to repatriate $350.0 million of foreign earnings by the end of August. This repatriation is not expected to result in any additional tax expense or benefit. As a result of the repatriation, there will be a tax charge of approximately $17.8 million in the third quarter of 2005; however, we have determined that the dividend repatriation will also result in a corresponding reduction in our foreign tax reserves in the third quarter of 2005. We are still evaluating whether to repatriate up to an additional $150.0 million of foreign earnings which could have an additional tax expense of approximately $2.6 million. We will finalize the evaluation during the fourth quarter. The estimates relating to the additional tax expense or benefit of repatriating foreign earnings exclude amounts that have been previously recognized in the consolidated financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

All assumptions, anticipations, expectations, and forecasts contained in the following discussion regarding our business, future products, business plans, financial results, performance, and future events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially because of a number of risks and uncertainties. Some of these risks are detailed below in “FACTORS THAT MAY AFFECT FUTURE RESULTS” and elsewhere in this Form 10-Q. Forward-looking statements can typically be identified by the use of words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable words. Forward-looking statements also include the assumptions underlying or relating to any such statements. The forward-looking statements contained in this Form 10-Q represent a good-faith assessment of our future performance for which management believes there is a reasonable basis. We disclaim any obligation to update the forward-looking statements contained herein, whether as a result of new information, future events, or otherwise, except as may be otherwise required by law.

SECOND QUARTER 2005 FINANCIAL OVERVIEW

Financial Results

We were pleased with our revenue improvement both on a year-over-year and sequential basis. Revenue for the quarter increased 6% compared to the second quarter of 2004. After adjusting to reflect constant currencies, revenue increased 3% compared to the second quarter of 2004. Revenue increased 10% compared to the first quarter of 2005. We saw particular strength in our tape product sales, which increased 13% compared to the second quarter of 2004, and increased 14% compared to the first quarter of 2005. Automation product revenue grew 77% compared to the second quarter of 2004, contributing significantly to the overall increase in tape product sales. Services revenue also continued to grow, increasing by 7% compared to the second quarter of 2004 and by 4% compared to the first quarter of 2005. We see meaningful opportunities in the services area, both in traditional maintenance as well as in the professional services and consulting areas. We believe that our services are a key enabler and a primary component in our information lifecycle management solutions.

We experienced revenue increases in all of our geographies compared to the second quarter of 2004. North America revenues increased 3%, European revenues increased 2%, Asia-Pacific revenues increased 13%, and Latin America revenues increased 32%.

We were also pleased with the continued strength in our product and service margins. Even with delays in customer purchase decisions during the second quarter as customers evaluated the proposed merger with Sun Microsystems, both product and service margins remained solid.

We experienced a significant increase in operating expenses, due primarily to increased research and development, sales activities, and marketing activities. Part of the increase is also attributable to approximately $5.2 million of merger costs incurred in connection with the proposed merger with Sun Microsystems, which is included in selling, general, and administrative (SG&A) expense. As a result of increased spending, our operating profit decreased 33%, and our net income decreased 13% compared to the second quarter of 2004.

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Financial Position and Liquidity

Our balance sheet remains solid. Total cash and investments were approximately $1.2 billion. We repurchased $38.5 million of stock in the second quarter through our stock repurchase program, and we generated $46.7 million in cash flows from operations. Days sales outstanding for the second quarter of 2005 was 76 days, a 4-day improvement compared to the second quarter of 2004. Inventory for the second quarter of 2005 was $127.1 million, a 3% increase from the fourth quarter of 2004. Inventory turns for the second quarter of 2005 were 5.0, compared to 5.8 for the second quarter of 2004. Our operations continue to be self-funded and our debt-to-capitalization ratio remains constant at less than 1%.

FINANCIAL OUTLOOK

Our future results will be dependent on the timing and successful consummation of the proposed merger with Sun Microsystems.

For a discussion of some of the risks and uncertainties that impact our business, see “FACTORS THAT MAY AFFECT FUTURE RESULTS” in this Item 2.

SELECTED CONSOLIDATED STATEMENT OF OPERATIONS DATA

The following table presents Consolidated Statements of Operations data stated as a percentage of total revenue, except for segment gross profit, which is stated as a percentage of the applicable segment revenue. The table also presents the percentage change based on the dollar amounts of each of the items.

							Percentage Increase
							(Decrease) Based on
	Quarter Ended						Dollar Amounts
	07/01/05			06/25/04			Q2 2005 vs. Q2 2004
Revenue:
Storage products		55.7	%		56.0	%		5.8	%
Storage services		44.3			44.0			6.9
Total revenue		100.0	%		100.0	%		6.3
Gross profit:
Storage products		48.5	%		47.4	%		8.4
Storage services		44.1			44.3			6.3
Total gross profit		46.6			46.0			7.5
Operating expenses:
Research and development costs		9.1			9.1			6.5
Selling, general, and administrative expenses		32.3			28.7			19.4
Operating profit		5.2			8.2			(32.8	)
Interest income		1.6			0.6			164.5
Interest expense		(0.1	)		(0.1	)		(2.8	)
Income before income taxes		6.7			8.8			(18.6	)
Provision for income taxes		1.0			1.9			(40.6	)
Net income		5.7	%		6.9	%		(12.6	)%

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The following table presents supplemental data for storage products revenue stated as a percentage of total storage products revenue, and the percentage change based on the dollar amounts of each of the items.

							Percentage
							Increase (Decrease)
							Based on Dollar
	Quarter Ended						Amounts
	07/01/05			06/25/04			Q2 2005 vs. Q2 2004
Supplemental data — storage products revenue
Tape products		79.3	%		74.4	%		12.7	%
Disk products		11.7			16.0			(22.4	)
Network products		5.7			6.4			(6.9	)
Other		3.3			3.2			12.1
Total storage products revenue		100.0	%		100.0	%		5.8	%

RESULTS OF OPERATIONS

Storage Products—Revenue and Gross Profit Margin

Our storage products revenue primarily consists of sales of tape, disk, and network products, including related software, for the mainframe and open-systems markets. The open-systems market consists of products designed to operate in the UNIX, NT, and other non-MVS operating environments.

Storage products revenue increased in the second quarter of 2005, compared to the same period in 2004, primarily due to an increase in tape product sales. The 77% increase in tape automation sales was primarily related to increased sales of the SL8500 library. This increase was partially offset by a decrease in sales of disk products. Storage products revenue decreased for the six months of 2005, compared to the same period in 2004, primarily due to a 48% decrease in sales of enterprise disk products and a 14% decrease in sales of open-systems disk products.

Storage products gross profit margin increased in the second quarter and six months of 2005, compared to the same period in 2004, primarily due to a shift in product mix toward our tape automation products, which typically sell at higher margins than our disk and network products.

Storage Services—Revenue and Gross Profit Margin

Our storage services revenue primarily consists of revenue associated with the maintenance and support of StorageTek products and third-party storage products, as well as professional services revenue associated with various storage consulting activities.

Storage services revenue increased in the second quarter and six months of 2005, compared to the same periods in 2004, primarily due to a 7% increase in maintenance and support services revenue for the quarter and a 6% increase for the six months. Professional services revenue also grew 7% in the second quarter of 2005, compared to the same period in 2004, and 11% in the six months of 2005. Professional services revenue continues to account for approximately 12% of total storage services revenue.

Storage services gross profit margin remained largely unchanged in the second quarter and six months of 2005, compared to the same periods in 2004. We believe that the mix of service revenue will continue to shift to more professional services. If professional services become a greater portion of our service revenue, we expect that the resulting change in our services mix would adversely impact our storage services gross

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profit margin, as professional services typically carry lower margins than our traditional maintenance offerings.

RESEARCH AND DEVELOPMENT

Research and development costs increased in the second quarter and six months of 2005, compared to the same periods in 2004, primarily due to significant product development activity leading up to new product launches.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE

Our SG&A expense increased significantly during the second quarter and six months of 2005, compared to the same periods in 2004. The increase was primarily attributable to higher bonus and commission expense associated with both increased revenue and incremental headcount, increased marketing activities associated with product launch activities, and approximately $5.2 million of merger costs associated with the proposed merger with Sun Microsystems. We also experienced unfavorable impacts of foreign currency movements on the operating expenses of our international operations.

INTEREST INCOME AND EXPENSE

Net interest income increased significantly for the second quarter and six months of 2005, compared to the same periods in 2004, primarily due to higher interest rates on our cash and investments balance.

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INCOME TAXES

Our effective tax rate was 15.8% for the second quarter and 18.0% for the six months of 2005, compared to 21.7% for the same periods in 2004. The decrease in our effective tax rate from the second quarter and six months of 2004 to the second quarter and six months of 2005 was primarily due to changes in anticipated income projections. We continue to recognize significant tax benefits associated with our manufacturing operations in Puerto Rico.

Based on our current estimates, we anticipate that the effective tax rate for the full year should be approximately 18%. Our effective tax rate may be impacted by a variety of factors, including the overall effectiveness of our global manufacturing strategies, tax legislation, and changes in our estimates regarding the resolution of open tax matters.

The American Jobs Creation Act of 2004 (AJCA), enacted on October 22, 2004, provides for a temporary 85% dividends received deduction on certain foreign earnings repatriated during a one-year period. On July 13, 2005, our chief executive officer and the Board of Directors approved our domestic reinvestment plan. Pursuant to that plan, we intend to repatriate $350.0 million of foreign earnings by the end of August. This repatriation is not expected to result in any additional tax expense or benefit. As a result of the repatriation, there will be a tax charge of approximately $17.8 million in the third quarter of 2005; however, we have determined that the dividend repatriation will also result in a corresponding reduction in our foreign tax reserves in the third quarter of 2005. We are still evaluating whether to repatriate up to an additional $150.0 million of foreign earnings which could have an additional tax expense of approximately $2.6 million. We will finalize the evaluation during the fourth quarter. The estimates relating to the additional tax expense or benefit of repatriating foreign earnings exclude amounts that have been previously recognized in the consolidated financial statements.

We are subject to regular audits by federal, state, and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax liabilities. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. Our income taxes payable balance as reported on the Consolidated Balance Sheet is comprised primarily of tax contingencies that we believe are both probable and reasonably estimable.

Statement of Financial Accounting Standards (SFAS) No. 109 requires that deferred income tax assets be recognized to the extent realization of such assets is more likely than not. Based on the currently available information, we have determined that we will more likely than not realize $204.8 million of deferred income tax assets as of July 1, 2005. Our valuation allowance of approximately $22.4 million as of July 1, 2005, relates principally to foreign net operating loss carryforwards.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Our critical accounting estimates and assumptions are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004. We have made no changes to those policies during the six months ended July 1, 2005.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

The following table summarizes our sources and uses of cash (in thousands):

	Six Months Ended
	07/01/05			06/25/04
Operating activities	$	98,579		$	143,261
Investing activities		(14,364	)		(102,395	)
Financing activities		(43,417	)		(11,474	)

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Our cash and cash equivalents balance increased $6.8 million during the six months of 2005, primarily as a result of cash flows generated by our operating activities. Days sales outstanding (DSO) now stands at 76 days, which is 4 days better than the second quarter of 2004. Inventory turns decreased to 5.0 times, a 14% decrease compared to the second quarter of 2004.

With respect to investing activities, we had a net sale of auction rate securities in the first half of 2005, as opposed to the first half of 2004, when we had a net purchase of auction rate securities. With respect to financing activities, we used $95.1 million of cash to purchase shares of our stock under the publicly announced share repurchase program in the first half of 2005, which was offset by $52.3 million of proceeds from employee stock plans.

Future Sources and Uses of Cash

We intend to repatriate $350.0 million of cash by the end of August in accordance with the provisions of the AJCA, which will increase our liquidity in the United States. If we choose to repatriate additional cash, we may need to arrange an international financing to facilitate the repatriation.

Our stock repurchase program allows us to acquire up to $500.0 million of our common stock. As of July 1, 2005, we had $270.8 million available to repurchase shares under the program. We suspended our share repurchase activities on June 2, 2005, the date that the merger with Sun Microsystems was announced. We do not anticipate any further share repurchases prior to the closing date of the merger.

We expect that cash flows from operations will continue to serve as our principal source of liquidity, and we believe that we have adequate working capital and financing capabilities to meet our anticipated operating and capital requirements for the next 12 months. However, cash flows from operations could be negatively impacted by a decrease in demand for our products and services as a result of rapid technological changes and other risks described under “FACTORS THAT MAY AFFECT FUTURE RESULTS.”

Over the longer term, we may choose to fund our operations through the issuance of additional equity or debt financing. The issuance of equity or convertible debt securities could result in dilution to our stockholders, and we cannot provide any assurance that such additional long-term financing, if required, could be completed on favorable terms.

FACTORS THAT MAY AFFECT FUTURE RESULTS

We may be materially affected by risks associated with the proposed merger with Sun Microsystems

We are subject to various risks associated with the proposed merger with Sun Microsystems, including the following:

• We cannot assure that the merger will provide greater value to stockholders than if we continued as an independent public company. We are unable to predict with certainty our future prospects or the market price of our common stock. Therefore, we cannot provide any assurance that the merger will provide greater value to stockholders than if we continued as an independent company.

• Failure to complete the merger could have a negative impact on the market price of our common stock and on our business. If the merger is not completed, the price of our common stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed. In addition, our business and operations may be harmed to the extent that customers, suppliers, and others believe that we cannot compete effectively without the merger.

• The “no solicitation” restrictions and the termination fee provisions in the merger agreement may discourage other companies from trying to acquire StorageTek. We are prohibited from soliciting or encouraging proposals that may lead to a business combination with a party other than Sun. We also agreed to pay Sun a termination fee in specified circumstances. These provisions could discourage other parties from offering to acquire our company at a greater value than offered by Sun.

• Our directors and officers have potential conflicts of interest that may have influenced their decision to support the merger. The directors and officers of StorageTek have interests in the merger that are in addition to, or different from, their interests as StorageTek stockholders and these interests may have influenced their decision to support the merger.

• Delays in customer purchase decisions and increased competitive pressures may result due to the announcement of the proposed merger. Our customers could delay purchase decisions pending completion of the merger and our competitors may seek to exert competitive pressure over our customers while the merger is pending.

The merger is subject to the satisfaction of certain conditions to closing, including clearance under the European Union merger control, approval by StorageTek stockholders at a special meeting of stockholders scheduled for August 30, 2005 in New York City, the absence of a material adverse change with respect to StorageTek, StorageTek’s compliance with its covenants and agreements under the merger agreement, StorageTek’s representations and warranties under the merger agreement being true and correct as of the closing date (except where the failure of such representations and warranties to be true and correct would not have a material adverse effect on StorageTek), and the absence of any legal restraint preventing the merger. We can provide no assurance that these conditions to closing will be satisfied and that the merger will occur.

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Form 10-Q

We may be materially affected by global economic and political conditions

Our ability to generate revenue growth during the last several years was adversely affected by a difficult global economy as customers delayed their purchase decisions, reduced their information technology spending budgets, increased their purchase authorization approval requirements, and reduced their capital expenditures by maximizing the current capacities of their data storage equipment. We expect this global economic trend to continue, and we are sustaining our cost-saving measures to help mitigate the adverse effects of this trend on our business. We cannot provide any assurance that a prolonged weakness in information technology spending will not have additional adverse effects on our financial condition, results of operations, or our ability to generate revenue growth. Furthermore, we cannot provide any assurance that our cost-saving measures will be successful or sufficient to allow us to continue to generate improved operating results in future periods.

Our financial condition and results of operations could also be materially affected by unstable global political conditions. Terrorist attacks or acts of war could significantly disrupt our operations and the operations of our customers, suppliers, distributors, or resellers. We cannot predict the potential impact on our financial condition or results of operations should such events occur.

We may be materially affected by a decrease in demand for our tape products or by an inability to maintain key competitive advantages in tape

During the second quarter of 2005, approximately 79% of our storage products revenue was generated by sales of our tape products. Services associated with our tape products also represent a significant portion of our storage services revenue. For a discussion of risk associated with new products, see “We may be materially affected by risks associated with new product development,” below. If overall demand for tape storage products declines, or if we lose significant market share in tape, our financial condition and results of operations could be materially affected.

One of the key competitive advantages that our tape products have over competing disk products is that tape products store data at a fraction of the price of disk storage. The price of disk storage continues to decrease rapidly due to competition and decreasing manufacturing costs associated with new disk drive technologies such as ATA disk. We must continue to develop and introduce new tape products that reduce the cost of tape storage at a rate that is similar to or greater than the decline in disk storage costs in order to maintain this competitive advantage. We cannot provide any assurance that we will be able to reduce the cost of our tape products at a rate similar to the decline in disk storage costs.

We may be materially affected by competition and by our ability to execute our information lifecycle management strategy

The data storage industry is highly competitive, and customers make their decisions based on a number of competitive factors. We must address each of these factors effectively in order to successfully compete. If we are unable to adapt our products and services to changes in these competitive factors, we may lose market share to our competitors.

Our principal strategy for growing revenue and addressing the competition is our information lifecycle management strategy. Our information lifecycle management strategy is intended to capitalize on our ability

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Form 10-Q

to deliver complete storage solutions that satisfy customer storage requirements around data archive, data protection, and primary storage. These solutions comprise tape, disk, networking, software, and services. We have achieved some initial success in our information lifecycle management strategy; however, we must continue to develop and deliver on this strategy in the future in order to grow revenue. We have also seen the adoption of strategies similar to our information lifecycle management strategy by our competitors. We cannot provide any assurance that we will successfully execute our information lifecycle management strategy or that this strategy will provide us with a competitive advantage in the data storage industry.

We may be materially affected by risks associated with new product development

New product research and development is complex and requires the investigation and evaluation of multiple alternatives, as well as planning the design and manufacture of those alternatives selected for further development. Research and development efforts could be adversely affected by any of the following:

• Hardware and software design flaws

• Product development delays

• Changes in data storage technologies

• Changes in operating systems

• Changes in industry standards

In addition, we have outsourced software development for certain tape and network products. We cannot provide any assurance that our research and development activities will be successful in bringing new products to market.

Manufacturing new products involves integrating complex designs and processes, coordinating with suppliers for parts and components, and managing manufacturing capacities to accommodate forecasted demand. Failure to obtain sufficient quantities of parts and components, as well as other manufacturing delays or constraints, could adversely affect the timing of new product introductions. We have experienced product development and manufacturing delays in the past that adversely affected our results of operations and competitive position.

We introduced significant new products in 2004 and the first half of 2005. We plan to introduce additional new products in the second half of 2005. When we introduce new products, we must effectively manage the transition from our existing products to the new products.

If we do not manage the transition effectively, we may be subject to the following adverse effects:

• Excess or obsolete inventory

• Insufficient inventory or manufacturing capacity to meet customer demand

• Delayed customer purchases

• Lost sales if customers purchase from our competitors

Sales of our new products may replace some of the sales of our existing products, and there may be a decline in sales of existing products in the periods leading up to new product introductions. In addition, sales of new products may result in lower service revenues if new products under warranty replace older products being serviced under maintenance agreements. We cannot provide any assurance that we will be able to successfully manage the development, introduction, or transition of new products in the future.

We may be materially affected by the risks associated with expanding our service offerings

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Form 10-Q

Services continue to contribute an increasing amount of our total revenue. Growth in services has partially been driven by service offerings such as storage consulting services, implementation services, and storage management services. The development and delivery of these services are critical to the success of our plan to deliver complete storage solutions to our customers. We must ensure that storage service professionals have the necessary skill sets, experience, tools, and training to support these service offerings. Revenue growth from these service offerings is needed to offset possible future declines in maintenance revenue from our installed service base of products under maintenance contracts as these products are displaced by sales of new StorageTek products under warranty. Any failure to properly develop or deliver our service offerings could have a material adverse effect on our financial condition and results of operations.

We may be materially affected by uneven sales patterns and by our ability to forecast customer demand accurately

In the past, our results have followed a seasonal pattern, which reflects the tendency of customers to make their purchase decisions at the end of a calendar year. During any fiscal quarter, a disproportionately large percentage of total product sales are earned in the last weeks or days of the quarter. We continued to experience these trends during the first half of 2005. It is difficult to predict the extent to which these historical trends will continue in the future. We cannot provide any assurance that we will be able to manage our uneven sales patterns.

We prepare and update our forecasts on a regular basis to predict customer demand for our products and services. If actual demand exceeds predicted demand, we may not be able to meet customer requirements in a timely manner due to sourcing, manufacturing, or service constraints. If actual demand is less than predicted demand, we may have excess inventory or an underutilized employee base. We cannot provide any assurance that we will be able to forecast customer demand accurately or respond quickly to changes in customer demand.

Our gross profit margin may be materially affected by product mix, channel mix, and resale of third-party products

We provide a variety of solutions to meet customer needs, including tape, disk, and network products, along with associated software and services. Our products and services contribute varying gross profit margins, and the gross margin on a customer’s total solution is dependent on the amounts and types of products or services involved. Gross profit margins may also be impacted by early start-up manufacturing costs associated with new products. We cannot provide any assurance that our future gross profit margin will be similar to our historical gross profit margin.

We market our solutions through a combination of a direct sales organization and indirect channel partners. Direct sales to the end-user customer usually result in higher gross profit margins than indirect channel sales. We cannot provide any assurance that changes in our channel mix will not have a material impact on gross profit margin in the future.

We sell a number of third-party products, and our gross profit margin may be adversely affected if those products become a larger portion of our total storage solutions. We may also be at a cost disadvantage in acquiring third-party products that are manufactured by competitors.

We may be materially affected by our ability to grow our indirect channels successfully

We are continually developing our indirect distribution channels, including original equipment manufacturers (OEMs), value-added distributors (VADs), value-added resellers (VARs), and other distributors. Indirect channel sales contributed approximately 47% of our total product revenue during the

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second quarter of 2005, compared to 44% in the same period in 2004. Increasing our sales through these indirect channels is critical to expanding our reach into new accounts and the growing open-systems market. Successfully managing the interaction of our direct and indirect channel efforts to effectively reach all of the potential customer segments for our products and services is a complex process. We cannot provide any assurance that we will be successful in expanding our indirect channel sales. Our ability to forecast future demand for our products may be adversely affected by unforeseen changes in demand from our indirect channel partners. Storage products gross profit margins may be adversely impacted to the extent we continue to receive a larger portion of our sales through our indirect channels in the future. Maintenance revenue may also be adversely affected in future periods to the extent that customers of our indirect channel partners elect to purchase maintenance services from our competitors. Our financial results may also be negatively affected if the financial condition of one or more of our channel partners weakens.

We may be materially affected by the risks associated with sole source suppliers

We purchase certain key parts, components, and services from sole source suppliers who we believe are currently the only providers that meet our specifications or for which alternative sources of supply are not readily available.

The following table shows our significant sole source suppliers and the products or services they provide:

Name of supplier	Product or service provided
Imation Corporation	T9840 and T9940 series tape media
Sanmina-SCI Corporation	Printed circuit boards and certain other manufacturing and repair     services
Engenio Information Technologies, Inc	Certain FlexLine disk products
Fujitsu Electronics America	Application-specific integrated circuits (ASICs) for various tape and      disk products
Austria Microsystems	ASICs for various tape products
Herald Datanetics Ltd. (HDL)	Key component used in certain tape products

We also obtain certain key parts and components from less significant sole source suppliers. If a sole source supplier did not continue to provide its products or services, we would need to identify and qualify other acceptable suppliers. This process could take an extended period, and we cannot provide any assurance that we could identify and qualify an alternative source on a timely basis or at an acceptable quality or price. We cannot provide any assurance that significant sole source suppliers will be able to meet our ongoing quality or delivery requirements. Failure to meet these requirements may have a material adverse impact on our financial condition and results of operations.

HDL is located in the People’s Republic of China (PRC). Our dependence on HDL is subject to additional risks beyond those associated with other sole source suppliers, including the lack of a well-established court system or acceptance of the rule of law in the PRC, the degree to which the PRC permits economic reform policies to continue, the political relationship between the PRC and the United States, and broader political and economic factors. To date, we have not experienced any material problems securing key components from HDL; however, we cannot provide any assurance that we will not experience material problems in the future.

We may be materially affected by a failure to obtain quality parts and components in a timely manner or by a failure to effectively manage inventory levels

We generally use standard parts and components for our products and believe that there are a number of alternative, competent vendors for most of those parts and components. Certain suppliers have experienced

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occasional technical, financial, or other problems that have delayed deliveries in the past. An unanticipated failure of one of our suppliers to meet requirements for an extended period, or the inability to secure comparable components in a timely manner, could result in a shortage of key components or products, longer lead times, reduced control over production and delivery schedules, and an inability to fulfill customer orders in a timely manner.

Since we operate in a lean manufacturing environment, we are dependent on a limited supplier base to deliver quality parts and components in a timely manner. A supplier’s inability to deliver parts and components on a timely basis, or our failure to effectively manage inventory levels, could have a material adverse effect on our financial condition and results of operations.

We may be materially affected by rapid technological change and evolving industry standards

Short product life cycles are inherent in high-technology industries due to rapid technological change and evolving industry standards. Our financial condition and results of operations depend on our ability to respond effectively to these changes. We cannot provide any assurance that we will be able to successfully develop, manufacture, and market innovative new products or adapt our current products to new technologies or new industry standards. In addition, customers may be reluctant to adopt new technologies and standards, or they may prefer competing technologies and standards.

We may be materially affected by the risks associated with developing and protecting intellectual property

We depend on our ability to develop new intellectual property that does not infringe on the rights of others. We cannot provide any assurance that we will be able to continue to develop such new intellectual property.

We rely on a combination of U.S. patent, copyright, trademark, and trade secret laws to protect our intellectual property rights. We enter into confidentiality agreements relating to our intellectual property with our employees and consultants, and we include confidentiality provisions in license and non-exclusive sales agreements with our customers.

We also file patent and trademark registration applications with foreign governments; however, many foreign countries do not have intellectual property laws that are as well developed as those of the United States.

Despite all of our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise obtain or use our intellectual property. Monitoring the unauthorized use of our intellectual property is difficult, particularly in foreign countries. We cannot provide any assurance that we will be able to adequately protect our intellectual property.

We may be materially affected by the risks associated with litigation

We are involved in a number of pending legal proceedings that have come up in the ordinary course of business. We believe that any liability as a result of adverse outcomes in such proceedings would not have a material adverse effect on our financial condition. However, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on our financial condition or results of operations in a particular quarter. An unfavorable decision, particularly in patent litigation, could require material changes in production processes and products or result in an inability to ship products or components found to have violated third-party patent rights.

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Form 10-Q

We may be materially affected if we are unable to attract and retain our key employees

Our future success depends in large part on our ability to attract and retain our key employees. During the past year, several changes were made with respect to the executive management team and their organizational responsibilities. We face significant competition for individuals who possess the skills required to sell our products and services, as well as design, develop, manufacture, service, and market those products and services. This issue has been further impacted by the recently announced merger with Sun Microsystems. An inability to successfully attract and retain employees could have an adverse effect on our future financial condition and results of operations. Furthermore, there may be a delay between when organizational announcements are made and when the organizations are fully effective.

We may be materially affected by the risks of conducting business outside the United States

International operations accounted for approximately 55% of our revenue in the second quarter of 2005, the same as in the second quarter of 2004. We also sell products through U.S. indirect channel partners that have some of their end-user customers located outside the United States. We expect that we will continue to generate a significant portion of our revenue from international operations.

Our international business may be affected by changes in demand resulting from global and localized economic, business, and political conditions. We are subject to the risks of conducting business outside the United States, including the following risks:

• Adverse political and economic conditions

• Impositions of tariffs or quotas

• Changes in laws or regulations

• Difficulty in obtaining export licenses

• Potentially adverse tax or labor laws

• The burdens of complying with a variety of foreign laws

• Longer payment cycles typically associated with international sales

• Foreign currency fluctuations

• Other factors outside our control

We expect these risks to increase in the future as we expand our operations in foreign countries. We cannot provide any assurance that these factors will not have a material adverse effect on our financial condition or results of operations in the future.

We may be materially affected by regulatory requirements

The European Union (EU) has finalized the Waste Electrical and Electronic Equipment (WEEE) directive and the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHs) directive. WEEE regulates the collection, recovery, and recycling of waste from electrical and electronic products. Under WEEE, we will be responsible for financing operations for the collection, treatment, disposal, and recycling of past and future covered products. RoHs bans the use of certain hazardous materials including lead, mercury, cadmium, chromium, and two brominated flame-retardants (PBB and PBDE). The EU member states are responsible for determining the specific legal requirements relating to these directives, most of which have now been finalized. We do not currently believe that costs to comply with WEEE and RoHs will be material to our operations, but we cannot provide any assurance that compliance with WEEE, RoHS, or other similar directives will not have a material adverse effect on our financial condition or results of operations.

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Form 10-Q

We are subject to various other regulatory requirements, including the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our manufacturing operations may be materially affected by weather-related risks

We manufacture and assemble a significant portion of our products in Puerto Rico. Our ability to perform these activities may be significantly affected by weather-related risks beyond our control. We believe that if the Puerto Rico facilities were significantly affected by adverse weather, we could relocate to an alternative facility within a reasonable period of time; however, we cannot provide any assurance that we would be able to relocate to that facility without a material adverse impact on our financial condition or results of operations.

We may be materially affected by restructuring activities

We have recognized significant restructuring charges in the past and it is possible that changes in our business, industry, or in the global economy may necessitate restructuring activities in the future. The necessity for restructuring activities may result in expenses that adversely affect our financial condition and results of operations and may require incremental cash payments.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk

Our primary market risk relates to changes in foreign currency exchange rates. The functional currency for our foreign subsidiaries is the U.S. dollar. A significant portion of our revenue is generated by our international operations. The majority of our international operations involve transactions denominated in the euro, Pound Sterling, and Japanese yen. An increase in the exchange value of the U.S. dollar reduces the value of revenue and profits generated by our international operations. As a result, our financial condition, results of operations, and cash flows can be materially affected by changes in foreign currency exchange rates. We attempt to mitigate this exposure as part of our foreign currency hedging program. The primary goal of our foreign currency hedging program is to reduce the risk of adverse foreign currency movements on the reported financial results of our non-U.S. dollar transactions. Factors that could have an impact on the effectiveness of our hedging program include the accuracy of forecasts and the volatility of foreign currency markets. All foreign currency derivatives are authorized and executed pursuant to our policies. We do not hold or issue derivatives or any other financial instruments for trading or speculative purposes.

To implement our foreign currency hedging program, we use foreign currency options and forwards. These derivatives are used to hedge the risk that forecasted revenue denominated in foreign currencies might be adversely affected by changes in foreign currency exchange rates. Foreign currency forwards are also used to reduce our exposure to foreign currency exchange rate fluctuations in connection with monetary assets and liabilities denominated in foreign currencies.

A hypothetical 10% adverse movement in foreign exchange rates applied to our foreign currency exchange rate sensitive instruments held as of July 1, 2005, and as of December 31, 2004, would result in a hypothetical loss in fair value of approximately $36.4 million and $55.4 million, respectively. The decrease in the

26

Form 10-Q

hypothetical loss is primarily due to a decrease in net outstanding derivatives. These hypothetical losses do not take our underlying international operations into consideration. We anticipate that any hypothetical loss associated with our foreign currency exchange rate sensitive instruments would be substantially offset by gains associated with our underlying international operations.

Interest Rate Risk

Changes in interest rates primarily affect interest income earned on our cash and short-term investments. A hypothetical 10% adverse movement in interest rates applied to our cash and short-term investments would not have a material adverse effect on our financial condition, results of operations, or cash flows.

Credit Risk

We are exposed to credit risk associated with cash equivalents, investments, foreign currency options and forwards, and trade receivables. We do not believe that our cash equivalents, investments, or foreign currency derivatives present significant credit risks, because the counterparties to the instruments consist of major financial institutions, and we manage the notional amount of contracts entered into with any one counterparty. Substantially all trade receivable balances are unsecured. The concentration of credit risk with respect to trade receivables is limited by the large number of customers in our customer base and their dispersion across various industries and geographic areas. Although we have a large number of customers who are dispersed across different industries and geographic areas, a prolonged economic downturn could increase our exposure to credit risk on our trade receivables. We perform ongoing credit evaluations of our customers and maintain an allowance for potential credit losses.

ITEM 4 – CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures (as defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) as of July 1, 2005, the end of the period covered by this report. Based on their evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.

During the fiscal quarter ended July 1, 2005, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Form 10-Q

PART II

ITEM 1 – LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 4 of “NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,” included in Part 1, Item 1, of this Form 10-Q, which information is incorporated by reference into this Part II, Item 1.

ITEM 2 – CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table summarizes our purchases of our equity securities during the second quarter of 2005:

					Total Number of		Approximate Dollar Value
	Total Number of				Shares Purchased as Part		of Shares that May Yet Be
	Shares Purchased		Average Price Paid		of Publicly Announced		Purchased Under the
Period	(1)		per Share		Plans or Programs		Plans or Programs (2)
04/02/05 – 05/06/05		615,800	$	28.58		615,800	$	291,684,469
05/07/05 – 06/03/05		615,900	$	30.41		615,900	$	272,953,071
06/04/05 – 07/01/05		68,500	$	31.49		68,500	$	270,795,964
Total		1,300,200	$	29.60		1,300,200

(1)

Excludes shares withheld to satisfy minimum tax withholding requirements associated with restricted stock lapses.

(2)

On July 8, 2004, our Board of Directors authorized a stock repurchase program to acquire up to $500 million of common stock. Purchases under this repurchase program may be made from time-to-time, in the open market, through block trades or otherwise, and in privately negotiated transactions. There is no fixed termination date for this repurchase program; however, the repurchase program has been suspended as a result of the announced merger with Sun Microsystems.

ITEM 6 – EXHIBITS

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q or are incorporated by reference into this Quarterly Report on Form 10-Q:

2.1	Agreement and Plan of Merger by and among Sun Microsystems, Inc., Stanford Acquisition Corporation, and Storage Technology Corporation dated as of June 2, 2005 (previously filed as Exhibit 2.1 to our Current Report on Form 8-K, filed on June 6, 2005, and incorporated herein by reference)
3.1	Restated Certificate of Incorporation of Storage Technology Corporation dated July 28, 1987 (previously filed as Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2000, filed on February 21, 2001, and incorporated herein by reference)
3.2	Certificate of Amendment dated May 22, 1989, to the Restated Certificate of Incorporation dated July 28, 1987 (previously filed as Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2000, filed on February 21, 2001, and incorporated herein by reference)
3.3	Certificate of Second Amendment dated May 28, 1992, to the Restated Certificate of Incorporation dated July 28, 1987 (previously filed as Exhibit 3.3 to our Annual Report on

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Form 10-Q

	Form 10-K for the fiscal year ended December 29, 2000, filed on February 21, 2001, and incorporated herein by reference)
3.4	Certificate of Third Amendment dated May 21, 1999, to the Restated Certificate of Incorporation dated July 28, 1987 (previously filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 1999, filed on August 9, 1999, and incorporated herein by reference)
3.52	Restated Bylaws of Storage Technology Corporation, as amended through June 1, 2005
4.1	Specimen Certificate of Common Stock, $0.10 par value of Registrant (previously filed as Exhibit (c)(2) to our Current Report on Form 8-K, filed on June 2, 1989, and incorporated herein by reference)
10.11	Storage Technology Corporation Amended and Restated 1987 Employee Stock Purchase Plan, as amended through May 21, 2003 (previously filed as Exhibit 4.6 to our Registration Statement on Form S-8 (Registration No. 333-106930) filed on July 10, 2003, and incorporated herein by reference)
10.21	Storage Technology Corporation Amended and Restated 1995 Equity Participation Plan, as amended through May 20, 2004 (previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2004, filed on August 3, 2004, and incorporated herein by reference)
10.31	Storage Technology Corporation 2004 Long Term Incentive Plan (previously filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2004, filed on August 3, 2004, and incorporated herein by reference)
10.41	Storage Technology Corporation Management by Objective Bonus Plan (previously filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
10.51	Storage Technology Corporation 2004 Performance-Based Incentive Plan (previously filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2004, filed on August 3, 2004, and incorporated herein by reference)
10.61	Storage Technology Corporation Amended and Restated Stock Option Plan for Non-Employee Directors (previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1996, filed on August 12, 1996, and incorporated herein by reference)
10.71	Storage Technology Corporation Flexible Option Plan, dated December 2001 (previously filed as Exhibit 10.5 to our Annual Report on Form 10-K for the fiscal year ended December 28, 2001, filed on March 4, 2002, and incorporated herein by reference)
10.81	Severance Agreement, dated as of July 1, 2001, between StorageTek and Robert S. Kocol (previously filed as Exhibit 10.9 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
10.91	Offer Letter, dated May 10, 2001, from StorageTek to Michael McLay (previously filed as Exhibit 10.17 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on August 9, 2001, and incorporated herein by reference)

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Form 10-Q

10.101	Offer Letter, dated February 9, 2001, from StorageTek to Roger Gaston (previously filed as Exhibit 10.20 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
10.111	Offer Letter, dated July 16, 2001, from StorageTek to Roy Perry (previously filed as Exhibit 10.28 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
10.121	Offer Letter, dated June 27, 2001, from StorageTek to Angel Garcia (previously filed as Exhibit 10.29 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
10.131	Form of Executive Severance Agreement (previously filed as Exhibit 10.32 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.14	Master Services Agreement (MSA), between each of StorageTek, Electronic Data Systems Corporation, and EDS Information Services L.L.C., dated as of April 1, 2002 (previously filed as Exhibit 10.33 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.15	Authorization Letter #1 pursuant to the MSA, dated April 1, 2002 (previously filed as Exhibit 10.34 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.16	Authorization Letter #2 pursuant to the MSA, dated April 1, 2002 (previously filed as Exhibit 10.35 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.17	Master Secondary Storage Services Agreement, between StorageTek and Electronic Data Systems Corporation, dated March 29, 2002 (previously filed as Exhibit 10.36 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.181	Form of Indemnification Agreement, dated as of November 22, 2002, between StorageTek and each director (previously filed as Exhibit 10.31 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated herein
10.191	Offer Letter, dated November 12, 2002, between StorageTek and Pierre Cousin (previously filed as Exhibit 10.33 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated herein by reference)
10.201	Agreement, dated December 1, 2002, between StorageTek and Pierre Cousin (previously filed as Exhibit 10.34 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated herein by reference)
10.211	Amended and Restated CEO Employment Agreement, dated March 27, 2003, between StorageTek and Patrick J. Martin (previously filed as Exhibit 10.36 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and incorporated herein by reference)

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Form 10-Q

10.221	Form of Executive Agreement, dated as of February 12, 2003, between StorageTek and each executive officer (previously filed as Exhibit 10.37 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and incorporated herein by reference)
10.23	Letter, dated July 24, 2003, from StorageTek to Bank of America, N.A. (previously filed as Exhibit 10.32 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2003, filed on August 8, 2003, and incorporated herein by reference)
10.241	Offer Letter, dated March 1, 2004, between StorageTek and Eula Adams (previously filed as Exhibit 10.31 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2004, filed on May 5, 2004, and incorporated herein by reference)
10.251	Credit Agreement, dated as of October 15, 2004, among StorageTek, the several financial institutions thereto, Bank of America, N.A., as L/C Issuer and Administrative Agent for the Banks, and Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager (previously filed in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 24, 2004, filed on November 1, 2004 and incorporated herein by reference)
10.261	Amended and Restated form of Stock Option Agreement for use in connection with the Amended and Restated 1995 Equity Participation Plan (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.271	Amended and Restated form of Restricted Stock Agreement for use in connection with the Amended and Restated 1995 Equity Participation Plan (previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.281	Amended and Restated form of Stock Option Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.3 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.291	Amended and Restated form of Restricted Stock Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.4 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.301	Amended and Restated form of the Restricted Stock Unit Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.5 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.311	Offer Letter, dated January 27, 2005, between StorageTek and Brenda Zawatski (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on February 2, 2005, and incorporated herein by reference)
10.321	Amended and Restated form of Restricted Stock Agreement for use in connection with the Amended and Restated 1995 Equity Participation Plan (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on February 14, 2005, and incorporated herein by reference)

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Form 10-Q

10.331	Amended and Restated form of Restricted Stock Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on February 14, 2005, and incorporated herein by reference)
10.341	Transition Agreement, between StorageTek and certain executive officers of StorageTek (previously filed as Exhibit 10.1 to our Current Report on Fort 8-K, filed on March 30, 2005, and incorporated herein by reference)
10.351	Offer Letter, dated March 14, 2005, between StorageTek and Nigel Dessau (previously filed as Exhibit 10.1 to our Current Report on Fort 8-K, filed on April 4, 2005, and incorporated herein by reference)
10.36	Form of Voting Agreement, dated as of June 2, 2005, by and among Sun Microsystems, Inc., StorageTek, and each director of StorageTek (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on June 6, 2005, and incorporated herein by reference)
31.12	Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.22	Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.12	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.22	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

1	Contract or compensatory plan or arrangement in which directors and/or officers participate
2	Indicates exhibit filed with this Quarterly Report on Form 10-Q

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Form 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STORAGE TECHNOLOGY CORPORATION (Registrant)
August 9, 2005	/s/ ROBERT S. KOCOL
(Date)	Robert S. Kocol
	Corporate Vice President
	and Chief Financial Officer
	(Principal Financial Officer)
August 9, 2005	/s/ THOMAS G. ARNOLD
(Date)	Thomas G. Arnold
	Vice President and Corporate Controller
	(Principal Accounting Officer)

33

Exhibit Index

Exhibit No.	Description
2.1	Agreement and Plan of Merger by and among Sun Microsystems, Inc., Stanford Acquisition Corporation, and Storage Technology Corporation dated as of June 2, 2005 (previously filed as Exhibit 2.1 to our Current Report on Form 8-K, filed on June 6, 2005, and incorporated herein by reference)
3.1	Restated Certificate of Incorporation of Storage Technology Corporation dated July 28, 1987 (previously filed as Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2000, filed on February 21, 2001, and incorporated herein by reference)
3.2	Certificate of Amendment dated May 22, 1989, to the Restated Certificate of Incorporation dated July 28, 1987 (previously filed as Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2000, filed on February 21, 2001, and incorporated herein by reference)
3.3	Certificate of Second Amendment dated May 28, 1992, to the Restated Certificate of Incorporation dated July 28, 1987 (previously filed as Exhibit 3.3 to our Annual Report on Form 10-K for the fiscal year ended December 29, 2000, filed on February 21, 2001, and incorporated herein by reference)
3.4	Certificate of Third Amendment dated May 21, 1999, to the Restated Certificate of Incorporation dated July 28, 1987 (previously filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 1999, filed on August 9, 1999, and incorporated herein by reference)
3.52	Restated Bylaws of Storage Technology Corporation, as amended through June 1, 2005
4.1	Specimen Certificate of Common Stock, $0.10 par value of Registrant (previously filed as Exhibit (c)(2) to our Current Report on Form 8-K, filed on June 2, 1989, and incorporated herein by reference)
10.11	Storage Technology Corporation Amended and Restated 1987 Employee Stock Purchase Plan, as amended through May 21, 2003 (previously filed as Exhibit 4.6 to our Registration Statement on Form S-8 (Registration No. 333-106930) filed on July 10, 2003, and incorporated herein by reference)
10.21	Storage Technology Corporation Amended and Restated 1995 Equity Participation Plan, as amended through May 20, 2004 (previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2004, filed on August 3, 2004, and incorporated herein by reference)
10.31	Storage Technology Corporation 2004 Long Term Incentive Plan (previously filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2004, filed on August 3, 2004, and incorporated herein by reference)
10.41	Storage Technology Corporation Management by Objective Bonus Plan (previously filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
10.51	Storage Technology Corporation 2004 Performance-Based Incentive Plan (previously filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2004, filed on August 3, 2004, and incorporated herein by reference)
10.61	Storage Technology Corporation Amended and Restated Stock Option Plan for Non-Employee Directors (previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1996, filed on August 12, 1996, and incorporated herein by reference)
10.71	Storage Technology Corporation Flexible Option Plan, dated December 2001 (previously filed as Exhibit 10.5 to our Annual Report on Form 10-K for the fiscal year ended December 28, 2001, filed on March 4, 2002, and incorporated herein by reference)
10.81	Severance Agreement, dated as of July 1, 2001, between StorageTek and Robert S. Kocol (previously filed as Exhibit 10.9 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
10.91	Offer Letter, dated May 10, 2001, from StorageTek to Michael McLay (previously filed as Exhibit 10.17 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on August 9, 2001, and incorporated herein by reference)

Exhibit No.	Description
10.101	Offer Letter, dated February 9, 2001, from StorageTek to Roger Gaston (previously filed as Exhibit 10.20 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
10.111	Offer Letter, dated July 16, 2001, from StorageTek to Roy Perry (previously filed as Exhibit 10.28 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
10.121	Offer Letter, dated June 27, 2001, from StorageTek to Angel Garcia (previously filed as Exhibit 10.29 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
10.131	Form of Executive Severance Agreement (previously filed as Exhibit 10.32 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.14	Master Services Agreement (MSA), between each of StorageTek, Electronic Data Systems Corporation, and EDS Information Services L.L.C., dated as of April 1, 2002 (previously filed as Exhibit 10.33 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.15	Authorization Letter #1 pursuant to the MSA, dated April 1, 2002 (previously filed as Exhibit 10.34 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.16	Authorization Letter #2 pursuant to the MSA, dated April 1, 2002 (previously filed as Exhibit 10.35 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.17	Master Secondary Storage Services Agreement, between StorageTek and Electronic Data Systems Corporation, dated March 29, 2002 (previously filed as Exhibit 10.36 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
10.181	Form of Indemnification Agreement, dated as of November 22, 2002, between StorageTek and each director (previously filed as Exhibit 10.31 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated herein
10.191	Offer Letter, dated November 12, 2002, between StorageTek and Pierre Cousin (previously filed as Exhibit 10.33 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated herein by reference)
10.201	Agreement, dated December 1, 2002, between StorageTek and Pierre Cousin (previously filed as Exhibit 10.34 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated herein by reference)
10.211	Amended and Restated CEO Employment Agreement, dated March 27, 2003, between StorageTek and Patrick J. Martin (previously filed as Exhibit 10.36 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and incorporated herein by reference)

Exhibit No.	Description
10.221	Form of Executive Agreement, dated as of February 12, 2003, between StorageTek and each executive officer (previously filed as Exhibit 10.37 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and incorporated herein by reference)
10.23	Letter, dated July 24, 2003, from StorageTek to Bank of America, N.A. (previously filed as Exhibit 10.32 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2003, filed on August 8, 2003, and incorporated herein by reference)
10.241	Offer Letter, dated March 1, 2004, between StorageTek and Eula Adams (previously filed as Exhibit 10.31 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2004, filed on May 5, 2004, and incorporated herein by reference)
10.251	Credit Agreement, dated as of October 15, 2004, among StorageTek, the several financial institutions thereto, Bank of America, N.A., as L/C Issuer and Administrative Agent for the Banks, and Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager (previously filed in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 24, 2004, filed on November 1, 2004 and incorporated herein by reference)
10.261	Amended and Restated form of Stock Option Agreement for use in connection with the Amended and Restated 1995 Equity Participation Plan (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.271	Amended and Restated form of Restricted Stock Agreement for use in connection with the Amended and Restated 1995 Equity Participation Plan (previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.281	Amended and Restated form of Stock Option Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.3 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.291	Amended and Restated form of Restricted Stock Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.4 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.301	Amended and Restated form of the Restricted Stock Unit Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.5 to our Current Report on Form 8-K, filed on December 21, 2004 and incorporated herein by reference)
10.311	Offer Letter, dated January 27, 2005, between StorageTek and Brenda Zawatski (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on February 2, 2005, and incorporated herein by reference)
10.321	Amended and Restated form of Restricted Stock Agreement for use in connection with the Amended and Restated 1995 Equity Participation Plan (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on February 14, 2005, and incorporated herein by reference)

Exhibit No.	Description
10.331	Amended and Restated form of Restricted Stock Agreement for use in connection with StorageTek’s 2004 Long Term Incentive Plan (previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on February 14, 2005, and incorporated herein by reference)
10.341	Transition Agreement, between StorageTek and certain executive officers of StorageTek (previously filed as Exhibit 10.1 to our Current Report on Fort 8-K, filed on March 30, 2005, and incorporated herein by reference)
10.351	Offer Letter, dated March 14, 2005, between StorageTek and Nigel Dessau (previously filed as Exhibit 10.1 to our Current Report on Fort 8-K, filed on April 4, 2005, and incorporated herein by reference)
10.36	Form of Voting Agreement, dated as of June 2, 2005, by and among Sun Microsystems, Inc., StorageTek, and each director of StorageTek (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on June 6, 2005, and incorporated herein by reference)
31.12	Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.22	Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.12	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.22	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

1	Contract or compensatory plan or arrangement in which directors and/or officers participate
2	Indicates exhibit filed with this Quarterly Report on Form 10-Q

EX-3.5

Exhibit 3.5

RESTATED BYLAWS
OF
STORAGE TECHNOLOGY CORPORATION

AS AMENDED THROUGH JUNE 1, 2005

ARTICLE I

OFFICES

     Section 1. Business Offices. The principal office of the corporation shall be located in Louisville, Colorado. The corporation may also have offices at such other places both within and without the State of Delaware or Colorado as the Board of Directors may from time to time determine or the business of the Corporation may require.

     Section 2. Registered Office. The registered office of the corporation shall be 1209 Orange Street in the City of Wilmington, County of New Castle, State of Delaware. The registered office may be changed from time to time by the Board of Directors.

ARTICLE II

STOCKHOLDERS

     Section 1. Annual Meeting. An annual meeting of the stockholders shall be held for the purpose of electing directors and for the transaction of such other business as may come before the meeting on the third Tuesday in May or such other date as may be designated by the Board of Directors at such time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time.

     Section 2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called at any time by the Board of Directors, a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as expressly provided in a resolution of the Board of Directors, include the power to call such meetings, any two directors or stockholders possessing in the aggregate at least 10% of the outstanding shares of capital stock entitled to vote generally upon the election of directors, considered for such purpose as one class, but such special meetings may not be called by any other person or persons. Business transacted at any special meeting of the stockholders shall be limited to the purpose or purposes stated in the notice.

     Section 3. Place of Meeting. Each meeting of the stockholders shall be held at such place or places either within or outside the State of Delaware or Colorado as may be designated in the notice of meeting, or, if no place is designated in the notice, at the principal office of the corporation.

     Section 4. Fixing Date for Determination of Stockholders of Record. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for any other lawful action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders, which date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed then the record date shall be: (a) for determining stockholders entitled to notice of or to vote at a meeting of stockholders, the close of business on the day next preceding the day on which notice is given, or, if notice is waived, the close of business on the day next preceding the day on which the meeting is held; (b) for determining stockholders entitled to express consent to corporate action without a meeting, when no prior action by the Board of Directors is necessary, the day on which the first written consent is expressed; and (c) for determining stockholders for any other purpose the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

     Section 5. Notice of Meeting. Except as otherwise provided by statute, written notice stating the place, day and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than 10 nor more than 60 days before the date of the meeting, unless otherwise required by statute, either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

     Section 6. Voting Lists. The secretary of the corporation shall cause to be prepared, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and

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showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock books shall be the only evidence of who are the stockholders entitled to examine the stock books, the list of stockholders or other books or records of the corporation, or to vote in person or by proxy at any meeting of stockholders.

     Section 7. Quorum. Except as otherwise provided by statute or by the certificate of incorporation, the holders of a majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, and the affirmative vote of a majority of the shares represented at a meeting at which a quorum is present and entitled to vote on the subject matter shall be the act of the stockholders. If less than a majority of the outstanding shares entitled to vote are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time in accordance with Section 5 of this Article II, until a quorum shall be present or represented.

     Section 8. Voting of Shares. Unless otherwise provided in the certificate of incorporation or a resolution of the Board of Directors fixing the designations, powers, preferences and other rights of any series of Preferred Stock and subject to the provisions of Section 4 of this Article, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock held by him which has voting power upon the matter in question. In the election of directors each record holder of stock entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected, and for whose election he has the right to vote. Cumulative voting for any purpose shall not be allowed.

     Section 9. Voting of Shares by Certain Holders. Persons holding voting stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose voting stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent such shares and vote thereon. If shares entitled to vote stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall be as set forth in the General Corporation Law of the State of Delaware.

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     Section 10. Conduct of Meetings. The chairman of the annual or any special meeting of the stockholders shall be the chairman of the Board of Directors (or any person designated by the Board of Directors), unless and until a different person is selected by a majority of the shares of stock entitled to vote, represented in person or by proxy present at a duly constituted meeting at which a quorum is present.

     Meeting of stockholders shall be conducted in accordance with the following rules:

     (a) The chairman of the meeting shall have absolute authority over matters of procedure and there shall be no appeal from the ruling of the chairman. If the chairman, in his absolute discretion, deems it advisable to dispense with the rules of parliamentary procedures as to any one meeting of stockholders or part thereof, the chairman shall so state and shall clearly state the rules under which the meeting or appropriate part thereof shall be conducted.

     (b) If disorder should arise which prevents continuation of the legitimate business of the meeting, the chairman may quit the chair and announce the adjournment of the meeting; and upon his so doing, the meeting is immediately adjourned; provided, however, if a majority of the shares entitled to vote, represented in person or by proxy, present at a duly constituted meeting at which a quorum is present desire to continue such meeting, they may by, affirmative vote, elect a new chairman and continue such meeting.

     (c) The chairman may ask or require that anyone not a bona fide stockholder or proxy leave the meeting.

     (d) A resolution or motion shall be considered for vote only if proposed by a stockholder or a duly authorized proxy and seconded by an individual, who is a stockholder or a duly authorized proxy, other than the individual who proposed the resolution or motion.

     Section 11. Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (including any shareholder proposals included therein pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended), (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation, and be presented in the manner provided in Section 10 of this Article II. To be timely, a stockholders notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the date on which

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notice of the prior years annual meeting was mailed to stockholders. A stockholders notice to the secretary shall set forth as to each such matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (b) the name and address, as they appear on the Corporations books, of the stockholder(s) proposing such business, or the name and address of the beneficial holder(s) or other party on whose behalf the proposal is made; (c) the class and number of shares of the Corporation that are beneficially owned by the stockholder(s) or beneficial holder(s) or other party on whose behalf the proposal is made; and (d) any material interest of the stockholder(s) or beneficial holder(s) or other party on whose behalf the proposal is made in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in Article II, Section 10 and this Section 11. The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting, and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

ARTICLE III

BOARD OF DIRECTORS

     Section 1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors, except as otherwise provided in the General Corporation Law of the State of Delaware or the certificate of incorporation. Directors shall be removable in the manner provided in Section 2 of this Article III.

     Section 2. Number, Tenure, Qualifications and Nomination. The number of directors of the corporation shall be not fewer than three nor more than 15, the exact number of directors to be determined from time to time by resolution adopted by the affirmative vote of the whole Board of Directors or by the affirmative vote of a majority of the outstanding shares of capital stock entitled to vote generally upon the election of directors (considered for such purpose as one class). As used in these Bylaws, the term “whole board of Directors” shall mean the total number of directors that the corporation would have if there were no vacancies.

     Directors shall be elected to one-year terms, to succeed those whose terms expire. Each director shall hold office until his successor shall have been elected and qualified or until his death, resignation or removal. Directors need not be residents of Delaware or stockholders of the corporation.

     Only persons who are nominated in accordance with the procedures set forth in this Section 2 of Article III shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a

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meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2 of Article III. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholders’ notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice, (i) the name and address, as they appear on the corporation’s books, of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder.

     At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2 of Article III. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing, nothing contained herein shall limit the authority of stockholders to act by consent without following the foregoing procedures with respect to the election of directors without a meeting, without notice and without a vote.

     Section 3. Vacancies. Any director may resign at any time by giving written notice to the corporation. A director’s resignation shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any vacancy for any reason or any newly created directorship resulting from any increase in the authorized number of directors may be filled by a majority of directors then in office, although less than a quorum, or by the affirmative vote of two directors if there are only two directors remaining, or by a sole remaining director, or by the stockholders if there are no directors remaining, and a

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director so chosen shall hold office until the next election of the class for which such director has been chosen and until his successor is duly elected and qualified, unless soon displaced. No decrease in the number of directors shall shorten the term of any incumbent director.

     If the holders of any class or classes of stock or series thereof are entitled to elect one or more directors, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series then in office, or by the affirmative vote of two such directors if there are only two directors if there are only two directors remaining of such class or classes or series, or by a sole remaining director so elected, or by the stockholders of such class or classes or series if there are no such directors remaining, and a director so chosen shall hold office until the next succeeding annual meeting of stockholders and until his successor is duly elected and qualified, unless sooner displaced.

     When one or more directors shall resign from the board, effective at a future date, a majority of directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this Section 3 of Article III for the filling of other vacancies.

     Section 4. Regular Meetings. A regular meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of stockholders, or as soon as practicable thereafter at the time and place, either within or without Delaware or Colorado, determined by the Board of Directors, for the purpose of electing officers and for the transaction of such other business as may come before the meeting. The Board of Directors may provide by resolution the time and place, either within or outside Delaware or Colorado for the holding of additional regular meetings. Notices of any regular meetings of the Board of Directors need not be given.

     Section 5. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the chief executive officer, the president or any two voting members of the Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or outside Delaware or Colorado as the place for holding any special meeting of the Board of Directors called by him or them.

     Section 6. Organization. Meetings of the Board of Directors shall be presided over by the chairman of the board, if any, or in his absence by the vice chairman of the board, if any, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

     Section 7. Notice. Except as provided in Section 4 of this Article III, notice of each meeting of the Board of Directors stating the place, day and hour of the meeting shall be given to each director at least four days prior thereto by the mailing of written

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notice by first class, certified or registered mail, or at least one day prior thereto by personal delivery of written notice or by telephonic or telegraphic notice. The method of notice need not be the same to each director. Notice shall be deemed to be given, if mailed, when deposited in the United States mail, with postage thereon prepaid, addressed to the director at his business or residence address; if personally delivered, when delivered to the director or to any responsible employee of the director if delivered to his business; if telegraphed, when the telegram is delivered to the telegraph company; if telephoned, when communicated to the director or to any responsible employee of the director at his place of business. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or any waiver of notice of such meeting.

     Section 8. Quorum and Voting. A quorum for the transaction of any business at a meeting of the Board of Directors shall consist of a majority of the number of directors fixed by Section 2 of this Article III, present in person, and, except as otherwise provided in the certificate of incorporation or these Bylaws, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If less than a quorum is present at a meeting, the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. No director may vote or act by proxy or power of attorney at any meeting of the Board of Directors.

     Section 9. Committees. The Board of Directors may, from time to time designate one or more committees as provided by law. Unless the Board of Directors otherwise provides, any committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to this Article III of these Bylaws. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

     Section 10. Compensation. The Board of Directors shall have the authority to fix the compensation of directors. No such payment of compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of any committee of the Board of Directors may be allowed like compensation for attending committee meetings.

ARTICLE IV

OFFICERS AND AGENTS

     Section 1. Enumeration. The president together with the Board of Directors of the corporation shall have such authority to elect or appoint such officers as may be necessary to conduct the business of the corporation and to perform such undertakings, acts and deeds as may be required by law. Any number of offices may be held by the same person, except that no person may simultaneously hold the offices of president and secretary.

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     Section 2. Election and Term of Office. The officers of the corporation shall be elected by the Board of Directors annually at the first meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. The Board of Directors may delegate to any officer the power to appoint, or remove subordinate officers, agents or employees. Each officer shall hold office until his successor shall have been duly elected and qualified or until his earlier death, resignation or removal.

     Section 3. Salaries. The salaries of the officers shall be as fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a director of the corporation.

     Section 4. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed at any time by the Board of Directors, or a duly authorized committee thereof, as provided in the contract, if any, with such officer or agent or whenever in the judgment of the Board of Directors or such committee the best interests of the corporation will be served thereby. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not in itself create contract rights.

     Section 5. Vacancies. Any officer may resign at any time, subject to any rights or obligations under any existing contracts between the officer and the corporation, by giving written notice to the corporation. An officer’s resignation shall take effect at the time specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any vacancy occurring in any office by the death, resignation, removal or otherwise shall be filled by the Board of Directors for the unexpired portion of the term.

     Section 6. Authority and Duties of Officers. The officers of the corporation shall have the authority and shall exercise the powers and perform the duties specified below and additional officers may be appointed to perform such other duties as may be additionally specified by the president, the Board of Directors or these Bylaws, except that in any event, each officer shall exercise such powers and perform such duties as may be required by law.

     (a) President. The president shall be the chief executive officer of the corporation unless such title is assigned to a Chairman of the Board. The president shall, subject to the direction of the Board of Directors, have general charge and supervision of the corporation. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders and of the Board of Directors. The president shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe.

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     (b) Vice Presidents. The vice president, (or if there is more than one then each vice president) shall assist any chief officers and shall perform such duties as may be assigned to them by any chief officer or the Board of Directors. The vice president, (or if there is more than one, then the vice president designated by the Board of Directors, or if there be no such designation, then the vice presidents in order of their election), shall, at the request of the appropriate chief officer, or in his absence or inability or refusal to act, perform the duties of the president and chief operating officer, and when so acting shall have all of the powers of and be subject to all of the restrictions upon such chief officer.

     (c) Secretary. The secretary shall: (i) keep the minutes of the proceedings of the stockholders, the Board of Directors and any Committee of the board; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (iii) be custodian of the corporate records and of the seal of the corporation; (iv) keep at the corporation’s registered office or principal place of business a record containing the names and addresses of all stockholders and the number and class of shares held by each, unless such record shall be kept at the office of the corporation’s transfer agent or registrar; (v) have general charge of the stock books of the corporation, unless the corporation has a transfer agent; and (vi) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or the Board of Directors.

     (d) Treasurer. The treasurer shall: (i) have care and custody of all funds, securities, evidence of indebtedness and other personal property of the corporation and deposit the same in accordance with the instructions of the Board of Directors; (ii) receive and give receipts and acquittances for moneys paid in on account of the corporation, and pay out of funds on hand all bills, payrolls and other just debts of the corporation of whatever nature upon maturity; and (iii) perform all other duties incident to the office of treasurer and such other duties as from time to time may be assigned by the president or the Board of Directors.

     Section 7. Surety Bonds. The Board of Directors may require any officer, employee or agent of the corporation to execute to the corporation a bond in such sums and with such sureties as shall be satisfactory to the Board of Directors, conditioned upon the faithful performance of his duties and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation.

ARTICLE V

STOCK

     Section 1. Issuance of Shares. The issuance or sale by the corporation of any shares of its authorized capital stock of any class, including treasury shares, shall be made only upon authorization by the Board of Directors or a duly authorized committee thereof, except as otherwise may be provided by statute.

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     Section 2. Certificates. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or the president or vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, representing the number of shares owned by him in the corporation registered in certificate form. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Certificates of stock shall be consecutively numbered and shall be in such form consistent with law as shall be prescribed by the Board of Directors.

     Section 3. Payment for Shares. Except as otherwise required by the certificate of incorporation shares shall be issued for such consideration (but not less than the par value thereof) as shall be determined from time to time by the Board of Directors or duly authorized committee thereof. Treasury shares shall be disposed of for such consideration as may be determined from time to time by the Board of Directors or duly authorized committee thereof. Such consideration shall be paid in such form and in such manner as the Board of Directors or such committee shall determine. In the absence of actual fraud in the transaction, the judgment of the Directors as to the value of such consideration shall be conclusive. The capital stock issued by the corporation shall be deemed to be fully paid and non-assessable stock if: (a) the entire amount of the consideration has been received by the corporation in the form of cash, services rendered, personal property, leases of real property or a combination thereof; or (b) not less than the amount of the consideration determined to be capital pursuant to statute has been received by the corporation in such form and the corporation has received a binding obligation of the subscriber or purchaser to pay the balance of the subscription or purchase price; provided, however, nothing contained herein shall prevent the Board of Directors from issuing partly paid shares pursuant to statute.

     Section 4. Lost Certificates. In case of the alleged loss, theft, destruction or mutilation of a certificate of stock the Board of Directors may direct the issuance of a new certificate in lieu thereof upon such terms and conditions in conformity with law as it may prescribe. The Board of Directors may in its discretion require a bond in such form and amount and with such surety sufficient to indemnify the corporation against any claim that may be made against it or account of the alleged loss, theft, destruction or mutilation of any such certificate or the issuance of such new certificate.

     Section 5. Transfer of Shares. Upon surrender to the corporation or to a transfer agent of the corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction in the stock books.

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     Section 6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

     Section 7. Transfer Agents, Registrars and Paying Agents. The Board of Directors may at its discretion appoint 1 or more transfer agents, registrars and agents for making payment upon any class of stock, bond, debenture or other security of the corporation. Such agents and registrars may be located either within or outside Delaware or Colorado. They shall have such rights and duties and shall be entitled to such compensation as may be agreed.

ARTICLE VI

MISCELLANEOUS

     Section 1. Waivers of Notice. Whenever notice is required to be given by law, by the certificate of incorporation or by these Bylaws, a written waiver thereof, signed by the person entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting or (in the case of a stockholder) by proxy shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.

     Section 2. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

     Section 3. Voting of Securities by the Corporation. Unless otherwise provided by resolution of the Board of Directors, on behalf of the corporation, the chief executive officer or any chief officer or officers designated by him shall attend in person or by

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substitute appointed by him or them, shall execute written instruments appointing a proxy or proxies to represent the corporation at, all meetings of the stockholders of any other corporation, association or other entity in which the corporations hold any stock or other securities, and may execute written waivers of notice with respect to any such meetings. At all such meetings and otherwise, the chief executive officer or any corporate officer or officers designated by him, in person or by substitute or proxy as aforesaid, may vote the stock or other securities so held by the corporation and may execute written consents and any other instruments with respect to such stock or securities and may exercise any and all rights and powers incident to the ownership of said stock or securities, subject, however, to the instructions, if any, of the Board of Directors.

     Section 4. Fiscal Year. The fiscal year of the corporation shall be as established by the Board of Directors.

     Section 5. Audits of Books and Accounts. The corporation’s books and accounts shall be audited at such times and by such auditors as shall be specified and designated by resolution of the Board of Directors.

     Section 6. Emergency Bylaws. The Board of Directors may adopt emergency bylaws in accordance with and pursuant to the provisions therefor from time to time set forth in the General Corporation Law of the State of Delaware.

     Section 7. Amendments. These Bylaws, other than Article II, Sections 2, 4, 7 and 10; Article III, Sections 2, 5 and 7, Article V, Section 3; and Article VI, Section 7 may be amended or repealed and new Bylaws adopted by the affirmative vote of not less than a majority of the whole Board of Directors. These Bylaws may be amended or repealed and new Bylaws adopted by the affirmative vote of the holders of not less than a majority of the outstanding shares of stock entitled to vote generally upon the election of directors (considered for this purpose as one class).

ARTICLE VII

INDEMNIFICATION

Section 1. Right to Indemnification.

(a) Each person (an “Indemnitee”) who:

(i) was or is made a party or is threatened to be made a party or is otherwise involved (including as a witness or a deponent) in any threatened, pending or completed action, lawsuit, arbitration, alternative dispute resolution mechanism, appeal, investigation (including, but not limited to, any internal corporate investigation) or other proceeding, whether civil, criminal, administrative, investigative or corporate (hereinafter a “Proceeding”);

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(ii) by reason of the fact that he or she is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent,

shall, upon a determination pursuant to Section 4 of this Article VII that such Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the corporation and, in the case of a criminal proceeding had no reasonable cause to believe such conduct was unlawful, be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, against all Expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred or suffered by such Indemnitee or on such Indemnitee’s behalf in connection therewith.

In any Proceeding by or in the right of the corporation, upon a determination pursuant to Section 4 of this Article that such Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the corporation, the corporation shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf and, to the extent permitted by law, amounts paid in settlement, in connection with each claim, issue or matter as to which the Indemnitee has reached a settlement.

     (b) To the extent that a person who is or was a director or officer of the corporation has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 1(a) (including any Proceeding by or in the right of the corporation), or in defense of any claim, issue or matter therein, such person shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, against all Expenses actually and reasonably incurred or suffered by such person or on such person’s behalf in connection therewith. For purposes of this Section 1(b) and without limitation, the termination of any claim, issue or matter in a Proceeding in which such person is a defendant by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Indemnification pursuant to this Section 1(b) shall not require a determination pursuant to Section 4 of this Article.

     (c) In the case of an amendment to the Delaware General Corporation Law after the date of the adoption of this Article, such amendment shall apply to this Article only to the extent that such amendment permits the corporation to provide broader indemnification rights than permitted prior thereto.

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     (d) Indemnification under this Article shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the Indemnitee, heirs, executors, administrators and assigns. The rights conferred in this Article shall be contract rights. No amendment of this Article shall adversely affect the rights of any Indemnitee insofar as such rights relate to facts or occurrences prior to the date of such amendment.

     (e) The term “Expense” shall include all reasonable attorneys’ and accountants’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise being involved with, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against the Indemnitee.

     (f) Notwithstanding any provision of this Article, the corporation shall not be obligated under this Article to make any payment for indemnification of any Expense, liability or loss: (i) to the extent that the amount that for which Indemnitee seeks payment, or a portion thereof has actually been made to or on behalf of the Indemnitee under any insurance policy, contract, agreement or otherwise; (ii) incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) initiated or brought voluntarily by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the corporation or its directors, officers or employees, unless the Board of Directors of the Corporation authorized the Proceeding (or any part of any Proceeding) prior to its initiation or the corporation provides the indemnification, in its is sole discretion, pursuant to the powers vested in the corporation under applicable law; or (iii) based upon an accounting of profits made from the purchase and sale (or sale and purchase) by the Indemnitee of securities of the corporation in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law.

Section 2. Right to Payment of Expenses Prior to Final Disposition. Without regard to whether the Indemnitee is entitled to indemnification under this Article, the Indemnitee shall have the right to be paid by the corporation within ten (10) days after receipt by the corporation of a written request thereof, the Expenses incurred in connection with any Proceeding for which such right to indemnification is applicable before its final disposition; provided, however, that, if the Delaware General Corporation Law so requires, payment of Expenses by the corporation under this Section 2 shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so paid if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such Indemnitee is

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not entitled to be indemnified for such Expenses under this Article. The Indemnitee may, at its sole discretion, select counsel in such Proceeding and/or assume the prosecution or defense thereof. Payment of Expenses under this Section 2 shall be unsecured and interest-free and shall be made without regard to Indemnitee’s ability to repay the Expenses. Such payment shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of payment of Expenses, including Expenses incurred preparing and forwarding statements to the corporation to support the payment claimed.

Section 3. Request for Indemnification. Upon final disposition of a Proceeding for which indemnification is sought pursuant to Section 1(a) hereof, the Indemnitee shall submit promptly to the Board a written request for indemnification averring that he or she has met the applicable standard of conduct for indemnification set forth in Delaware General Corporation Law. Any indemnification made pursuant to Section 1(a) hereof shall be made by the corporation only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct.

Section 4. Determination of Indemnification.

     (a) The determination of whether the corporation shall indemnify the Indemnitee shall be made as set forth in Section 4(b) hereof, and such determination shall be made within sixty (60) days after the Indemnitee has made the written request for indemnification. If it is determined that the Indemnitee is entitled to indemnification, payment shall be made within ten (10) days after such determination.

(b)(i) If a Change in Control shall have occurred, the determination shall be made by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee;

(ii) In any other circumstance, the determination shall be made, by the Board, provided that if the Indemnitee is or was a director of the corporation, the determination shall be made: (A) by a majority vote of the directors who are not and were not parties to the Proceeding that is the subject of the request for indemnification (“Disinterested Directors”), even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (D) if so directed by the Board, by the stockholders of the corporation; and

(iii) In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected in the following manner:

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(x) If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board; and

(y) If a Change in Control shall have occurred, the Independent Counsel shall be selected by the Indemnitee, subject to the prior consent of the Board, not to be unreasonably withheld.

     (c) Indemnitee shall cooperate with the party making such determination, including providing upon reasonable advance request any documentation or information reasonably necessary to making such determination which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee. Any costs or expenses (including attorneys’ fees and disbursements) incurred by the Indemnitee in so cooperating with the party making such determination shall be borne by the corporation (irrespective of the determination as to the Indemnitee’s entitlement to indemnification) and the corporation indemnifies and agrees to hold the Indemnitee harmless therefrom.

     (d) In the event of a Change in Control, the corporation shall, upon written request by the Indemnitee, create a trust for the benefit of the Indemnitee (the “Trust”) and from time to time upon written request of the Indemnitee shall fund the Trust in an amount equal to all Expenses, judgments, fines and amounts paid in settlement reasonably anticipated at the time to be incurred in connection with any Proceeding or any claim, issue or matter therein. The amount to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the party required to make the determination that indemnification of the Indemnitee is proper pursuant to paragraph (b) of this Section 4 (the “Reviewing Party”). The terms of the Trust shall provide that (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of the Indemnitee, (ii) the trustee of the Trust shall advance, within ten (10) business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances in which the Indemnitee would be required to reimburse the corporation for any Expenses advanced under this Article), (iii) the Trust shall continue to be funded by the corporation in accordance with the funding obligation set forth above, (iv) the trustee of the Trust shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Article or otherwise and (v) all unexpended funds in that Trust shall revert to the corporation upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that the Indemnitee has received amounts, if any, which fully satisfy the corporation’s obligation to indemnify the Indemnitee under the terms of this Article. The trustee of the Trust shall be chosen by the Indemnitee. Nothing in this Section 4 shall relieve the corporation of any of its obligations under this Article.

     (e) The term “Change in Control” means the occurrence of any of the following events: (i) the acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (x) the corporation or a person that directly or indirectly controls, is controlled by, or is under

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common control with, the corporation, (y) any trustee or other fiduciary holding securities under an employee benefit plan of the corporation, or (z) any corporation owned, directly or indirectly, by the stockholders of the corporation in substantially the same proportions as their ownership of stock of the corporation, of the “beneficial ownership” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the corporation representing fifteen percent (15%) or more of the combined voting power represented by the corporation’s then outstanding voting securities; (ii) a merger or consolidation of the corporation with any other entity, other than a merger or consolidation which would result in the voting securities of the corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity, including the parent corporation of such surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the corporation or such surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; (iii) the approval by the stockholders of the corporation of a plan of complete liquidation of the corporation, or the sale or disposition by the corporation of all or substantially all the corporation’s assets; (iv) during any period of two (2) consecutive years after the adoption of this Article, individuals who at the beginning of such period constitute the Board cease for any reason to constitute less than a majority of the members of the Board; or (v) there occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the corporation is then subject to such reporting requirement.

     (f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the corporation or the Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the corporation or the Indemnitee in an action to determine an Indemnitee’s rights under this Article.

Section 5. Right of Indemnitee to Bring Suit; Certain Presumptions.

     (a) The Indemnitee may bring suit against the corporation to be indemnified if: (i) a request for indemnification or for payment of Expenses is denied by the corporation; (ii) a request for payment of Expenses prior to final disposition is approved but the corporation has not made payment within ten (10) days; (iii) no determination of entitlement to indemnification has been made within sixty (60) days of receipt of request by the corporation; or (iv) the corporation has approved a request for indemnification but the corporation has not made payment within ten (10) days.

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     (b) In the event that Indemnitee sues the corporation for indemnification or payment of Expenses and is successful in whole or in part, the Indemnitee shall be entitled to be paid by the corporation for the Expense of prosecuting such suit. If the corporation sues Indemnitee to recover Expenses paid prior to final disposition under this Article and Indemnitee is successful in defending such suit in whole or in part, Indemnitee shall be entitled to be paid the Expense of defending such suit.

     (c) In any action brought to enforce indemnification (but not in a suit brought by Indemnitee to enforce payment of Expenses prior to final disposition), it shall be a defense against indemnification if it is determined by final adjudication that the Indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law.

     (d) The submission of the written request for indemnification to the Board shall create a rebuttable presumption that the Indemnitee is entitled to indemnification pursuant to this Article VII, and the Board, Independent Counsel, or stockholders, as the case may be, shall within sixty (60) days after submission of the written request for indemnification specifically determine that the Indemnitee is so entitled, unless it or they possess sufficient evidence to rebut the presumption that the Indemnitee has met the applicable standard of conduct. If a determination shall have been made that the Indemnitee is entitled to indemnification, the corporation shall be bound by such determination in any judicial proceeding commenced pursuant to Section 5 of this Article VII absent (i) a misstatement by the Indemnitee of a material fact, or any omission of a material fact necessary to make the Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. Neither the failure of the corporation to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right to indemnification or to a payment of Expenses hereunder, or by the corporation to recover a payment of Expenses prior to final disposition pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such payment of Expenses prior to final disposition, under this Article shall be on the corporation.

     (e) In connection with determining whether an Indemnitee who is or was a director is entitled to indemnification:

(i) the termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself adversely affect the right of the director to indemnification or create a presumption that director did not act in

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good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that the director had reasonable cause to believe that his conduct was unlawful;

(ii) the director shall be deemed to have acted in good faith if the director’s action is based on the advice of legal counsel for the corporation or on information or records given or reports made to the corporation by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation; and

(iii) to the extent legally permissible, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the corporation shall not be imputed to the director.

     Section 6. Non-Exclusivity of Rights. The rights to indemnification and to the payment of expenses prior to final disposition conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the corporation’s certificate of incorporation, by-law, agreement, vote of stockholders or Disinterested Directors or otherwise. In the event of any payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to entitle the corporation to bring suit to enforce such rights.

     Section 7. Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. To the extent that the corporation maintains an insurance policy or policies providing liability insurance for directors of the corporation, each director shall be covered by such policy or policies in such manner as to provide each director the same rights and benefits as are accorded to other directors.

     Section 8. Contractual Rights; Applicability. The right to be indemnified or to the reimbursement or advance of Expenses pursuant to this Article VII (i) is a contract right based upon good and valuable consideration, pursuant to which the Indemnitee may bring suit as if the provisions of this Article VII were set forth in a separate written contract between the corporation and the Indemnitee, (ii) is intended to be retroactive and shall be available with respect to events occurring prior to the adoption of this Article VII, and (iii) shall continue to exist after the rescission or restrictive modification of this Article VII with respect to events occurring prior to such rescission or restrictive modification.

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     Section 9. Requested Service. Any Indemnitee serving, in any capacity, (i) another corporation of which a majority of the shares entitled to vote in the election of its directors is held by the corporation, or (ii) any employee benefit plan of the corporation or of any corporation referred to in clause (i), shall be deemed to be doing so at the request of the corporation.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Patrick J. Martin, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Storage Technology Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2005

/s/ Patrick J. Martin

Patrick J. Martin

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert S. Kocol, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Storage Technology Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2005

/s/ Robert S. Kocol

Robert S. Kocol

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Storage Technology Corporation (the Company) on Form 10-Q for the period ending July 1, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Patrick J. Martin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patrick J. Martin

Patrick J. Martin

Chief Executive Officer

August 9, 2005

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Storage Technology Corporation (the Company) on Form 10-Q for the period ending July 1, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert S. Kocol, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert S. Kocol

Robert S. Kocol

Chief Financial Officer

August 9, 2005